An Economic Pillar on the Verge of Collapse

Washington Post ^ | December 6, 2006 | Steven Pearlstein

[GodGunsGuts]

An Economic Pillar on the Verge of Collapse

By Steven Pearlstein Wednesday, December 6, 2006; D01

It's been more than a year since we've heard from those who denied there was a housing bubble.

Since then, the industry boosters, along with the "soft-landing" crowd over at the Federal Reserve, have coalesced around the idea that maybe the market got a bit frothy after all, but now the correction is almost complete, the unsold inventory's been worked off and the worst is behind us.

But just when you're feeling hopeful again, you get reports like yesterday's Wall Street Journal piece reporting that delinquency rates are suddenly soaring on all those loosey-goosey subprime mortgages. They are starting to cause real heartburn for pension funds and other investors who bought securities backed by those mortgages on the theory that they were no more risky than a Treasury bond.

"We are a bit surprised by how fast this has unraveled," Thomas Zimmerman, head of asset-backed securities research at UBS, told the Journal, removing his head from the sand. Trust me, Tom, you ain't seen nothin' yet. After the subprime loans come the 100 percent, interest-only loans, followed by the meltdown in the overbuilt multi-family housing sector....

[ex-Texan]

Report on Business: December 2nd

http://www.youtube.com/watch?v=S_i7yWizHhg

Summary: The Major Bubbles now driving the U.S. economy are about to collide and cause economic havoc. A Bubble Quake is coming. The housing bubble. Dollar bubble. What are the others? Stock market. Credit. Gold. Oil. Take your pick.

More economic reports are posted on these sites:

http://www.itulip.com/

http://newspundit.net

[RobRoy]

My old office had a bubble jet printer. Does that count? ;)

[RobRoy]

http://www.iht.com/articles/2006/12/07/bloomberg/bxbux.php

Hmmm. If the Europeans increase rates, how exactly are we supposed to reduce ours? In fact, how can we even keep ours flat?

[Deo et Patria]

Great, another doomsday article about how the housing market is on the verge of collapse due to risky loans. It's funny how anyone with one of those loans could refinance today and still get 6% fixed over 30 years. But because some people are too stupid to evaluate the interest-only ARM they got into 3 years ago, and because of that they're on the verge of a foreclosure, we're supposed to believe that this means the entire U.S. housing market is on the verge of a historic collapse?

Pretty funny stuff.

[RobRoy]

>>It's funny how anyone with one of those loans could refinance today and still get 6% fixed over 30 years.<<

How exactly do you do that if you cannot make your existing payment and this loan would increase your monthly payment by 30%?

You also have to actually qualify for a loan, which is harder to do than it was a few months ago. The fraudsters are being arrested tried and on notice. The salad days are over. We are now just waiting to see how bad it can get. Time will tell.

[spunkets]

.

[ex-Texan]

The economic effects of these bubble are just coming out now. Wait until the end of Q1 2007. Then we will really see what's what. Foreclosures, anyone?

[durasell]

It ain't the data, it's the panic.

[RobRoy]

I have gone on record here that my official "we will all know which side is gonna be right" date is April of next year. It is partly based on what I know about annual real estate sales, much as everyone locks in on Christmas retail sales as an economic strength check.

[GodGunsGuts]

Gold rises and falls with inflation. It occasionally gets wrapped up in speculative frenzies, but only when increasing numbers of people become fearful about the economy. Other than that, gold's value pretty much tracks inflation. Gold has been rising for the last five years because it has been tracking the depreciating dollar. I have shown you chart after chart that demonstrates this to be the case. Of course, by the time this is all over, gold will once again be sucked into a speculative frenzy based on fear. But it won't last long, and gold will once again establish its long term linkage to inflation...as Greenspan well knows. And speaking of Greenspan...

"Gold still represents the ultimate form of payment in the world. Fiat money in extremis is accepted by nobody. Gold is always accepted."

- Alan Greenspan - May 20, 1999

[GodGunsGuts]

You won't be laughing in fairly short order. In fact, the massive decline in the housing market heretofore should have wiped that smile off you face over a month ago. I think you would do well to explore the other side of the argument...and not just in terms of the housing market, but in terms of our over-leveraged and unbalanced economy as a whole. But if you prefer to avoid drinking from a different fount than what you are used to, that is of course your prerogative. As they say, you can lead a horse to water...

[Toddsterpatriot]

Gold rises and falls with inflation.

So does that mean it's not consistent?

Other than that, gold's value pretty much tracks inflation.

The stock market pretty much beats inflation by 7% a year.

[Lancey Howard]

I agree with most of what you said except for the first line: there is no "justifiable reason" to take out a risky adjustable-rate mortgage when fixed rates are at the all-time lows we have now. The only reason I have ever seen (not "justifiable", IMO) for people to take out an adjustable in today's climate is because they love the lower payments they will have for a year or two or three - - in other words, "instant gratification".

When shiite happens to people, or the payments on their ARMs jump up (see: several FR threads about all those poor souls "who find they can no longer make the payments") I simply cannot have any sympathy. Sorry. "Financial Darwin" may be a tad harsh, but PT Barnum (or somebody like that) said it best: "There's a sucker born every minute."

Regards,
LH

[DCPatriot]

It's justifiable to the person making the decision at the time. Best intentions...and all that. ;^)

[DCPatriot]

Bozos huh?

You're gonna eat those words. ;^)

[GodGunsGuts]

Yet more evidence that we may have already entered a recession:

http://www.financialsense.com/fsu/editorials/jain/2006/1208.html

[Mase]

Bozos huh?

• 8.5% inflation that the bond market, stock market and all the banks don't see?

• GDP growth is half what the government says it is and the markets are all oblivious?

• Housing prices are going to contract 40% (or more) even though the economy is booming and unemployment is 4.5%?

• Gold is going to $1,650 and ounce?

Yup. They're all bozos on that bus.

You're gonna eat those words.

Curiously, none of the doomers have cared to make an exact prediction for when the doom will come. One economic Eeyore here has been wrong since 2003. Maybe you'd like to be the first to tell us exactly when the end will come? :^)

[DCPatriot]

Don't be silly.

A Capitalist system MUST have retractions to go along with expansions.

Do you recall when brought us Adjustable Rate Mortgages (ARMS)?

It was 17% 30 year fixed mortgages back in 1981.

Offering 100% financing on over-valued real estate is a castrophe in the making. For both the investor money behind the 2nd trust loan AND the mortgagee.

After a 5 year real estate boom with unprecedented appreciation, we're overdue for a correction.

Many people aren't able to sell because they lack the funds to bring to the table to cover the selling costs. Their options are to request a "short sale" from their lender(s) or let it go to foreclosure.

Now, if you're telling me that's just an example of redistribution of wealth, okay...but many people are going to ruin their credit and borrowing power

[ex-Texan]

Please tell me -- What's wrong with this picture? Is the U.S. still manufacturing stuff to sell to other nations?

Or do we just borrow more from our inflated assets to buy more stuff made overseas? Isn't that like robbing Peter to pay Paul. Or is that like using PayPal credit transactions? Whatever . . .

LOL, LOL, LOL !

[Toddsterpatriot]

Is the U.S. still manufacturing stuff to sell to other nations?

Hardly anything. Only $900 billion last year. LOL, LOL, LOL!